Unauthorized inherited IRA transfer receives rollover waiver

Plain-English summary

A surviving spouse was the primary beneficiary of her deceased husband's Roth IRA. A financial adviser directed the bank to transfer the IRA to her trust without her authorization, without signed paperwork, and without explaining that she could make a spousal rollover. She learned that the transfer was taxable only when her accountant prepared her return. The IRS waived the 60-day rollover deadline and gave her 60 days from the ruling date to contribute the amount to a rollover Roth IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the surviving spouse receive a rollover deadline waiver after an adviser and bank transferred the inherited IRA to her trust without authorization?
• Outcome: Approved, with a new 60-day contribution period
• Key authorities: IRC §§ 408(d)(3), 408A; Treas. Reg. §§ 1.408-8, 1.408A-1 through 1.408A-9; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

201615024

JAN 11 2016

U.I.L. 408.03-00

SE:T:EP:RA:T3

XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXX
Decedent B = XXXXXXXXXXX
IRA X = XXXXXXXXXXX
Trust T = XXXXXXXXXXX
Bank C = XXXXXXXXXXX
Amount D = XXXXXXXXXXX
Individual M = XXXXXXXXXXX
Date 1 = XXXXXXXXXXX
Date 2 = XXXXXXXXXXX

Dear XXXXXXXXXXXX:

This letter is in response to your request dated July 7, 2015, as supplemented by
correspondence dated September 8, 2015, submitted on your behalf by your
authorized representative, in which you request a waiver of the 60-day rollover
requirement contained in section 408(d)(3) of the Internal Revenue Code (the
“Code”).

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The following facts and representations have been submitted under penalty of
perjury in support of the ruling requested.

Taxpayer A received a distribution of Amount D on Date 2 from IRA X. Taxpayer
A asserts that her failure to accomplish a rollover of Amount D within the 60-day
period prescribed by section 408(d)(3) of the Code was due to an error
committed by Individual M and Bank C.

Taxpayer A’s husband, Decedent B was the owner of IRA X. Decedent B passed
away on Date 1. Decedent B named Taxpayer A as primary beneficiary of IRA X.

On Date 2, upon the direction of Individual M, Amount D was transferred from
IRA X to Trust T without Taxpayer A's authorization or consent. It was never
Taxpayer A’s intention to create a taxable distribution.

Taxpayer A represents that she does not recall ever giving permission to
Individual M to transfer IRA X to Trust T. Taxpayer A further represents that Bank
C never had her sign any paperwork directing that IRA X be transferred to her
trust account.

Documentation submitted by Individual M, states that Taxpayer A did not sign
any such paperwork because of an oversight on the part of Bank C. Individual M
further states that before the transfer, he did not inform her of the ability to make
a spousal rollover.

Taxpayer A first became aware that the transferring of IRA X to Trust T was a
taxable event when she went to her accountant for preparation of her 20__
income tax return.

Based on the foregoing facts and representations, you request that the Internal
Revenue Service (Service) waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to Amount D.

Section 408(d)(1) of the Code provides that, except as otherwise provided in
section 408(d), any amount paid or distributed out of an IRA shall be included in
gross income by the payee or distributee, as the case may be, in the manner
provided under section 72 of the Code.

Section 408(d)(3) of the Code requires generally that any amount distributed
from a qualified trust or individual retirement plan must be transferred to an
eligible retirement plan no later than the 60th day following the day of receipt in
order to avoid inclusion in the distributee’s gross income.

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Section 408A of the Code and Treasury Regulations (Regulations) sections
1.408A-1 through 1.408A-9 provide the rules governing Roth IRAs. Section
1.408A-1, Q&A1 (b) of Regulations provides, in relevant part, that Roth IRAs are
treated as traditional IRAs except where the Code specifies different treatment.

Section 1.408A-6, Q&A 14(b) of the Regulations provides, in relevant part, that if
the sole beneficiary of a decedent's Roth IRA is the decedent’s spouse, such
Spouse may delay distributions until the decedent would have attained age 70-
1/2 or may treat the Roth IRA as his or her own.

Section 1.408A-8, Q&A1(b)(10) of the Regulations provides that the phrase “treat
an IRA as his or her own” means to treat an IRA for which a surviving spouse is
the sole beneficiary as his or her IRA after the death of the IRA owner in
accordance with the terms of the IRA instrument or in the manner provided in the
regulations under section 408(a)(6) or (b)(3) of the Code.

Section 1.408A-2, Q&A 4, of the Regulations provides in relevant part, that the
effect of a surviving spouse of a Roth IRA owner treating a Roth IRA as his or her
own as of a date, the Roth IRA is treated from that date forward as though it were
established for the benefit of the surviving spouse and not the original Roth IRA
owner.

Section 1.408-8, Q&A 5, of the Regulations provides that a surviving spouse may
elect to treat the spouse’s entire interest as a beneficiary in an individual’s IRA as
the spouse’s own IRA. In order to make this election, the spouse must be the
sole beneficiary of the IRA and have an unlimited right to withdraw amounts from
the IRA

Section 408(d)(3)(E) of the Code provides that the rollover provisions of section
408(d) do not apply to any amount required to be distributed under section
408(a)(6).

Section 408(d)(3)(I) of the Code provides that the Secretary may waive the 60-
day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code where
the failure to waive such requirement would be against equity or good
conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement. Only distributions that
occurred after December 31, 2001, are eligible for the waiver under section
408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that in determining whether to
grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I),
the Service will consider all relevant facts and circumstances, including: (1)
errors committed by a financial institution; (2) inability to complete a rollover due
to death, disability, hospitalization, incarceration, restrictions imposed by a
foreign country or postal error; (3) the use of the amount distributed (for example,

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in the case of payment by check, whether the check was cashed); and (4) the
time elapsed since the distribution occurred.

The information presented and documentation submitted is consistent with
Taxpayer A’s assertions that the failure to accomplish a timely rollover was due
to an error committed by Individual M and Bank C.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount
D from IRA X. Taxpayer A is granted a period of 60 days from the issuance of
this letter ruling to contribute Amount D into a rollover Roth IRA. Provided all
other requirements of Code section 408(d)(3), except the 60-day requirement,
are met with respect to such contribution, the contribution of Amount D will be
considered a rollover contribution within the meaning of section 408(d)(3) of the
Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) of the Code.

No opinion is expressed as to the tax treatment of the transaction described
herein under the provisions of any other section of either the Code or
Regulations which may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file with this office.

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If you have any questions concerning this ruling, please contact XXXXXXXXXXX,
XXXXXXXXXXXXXXXXXXXXX at XXXXXXXXXXXXXXXXXXXX. All correspondence should be
addressed to SE:T:EP:RA:T3.

Sincerely yours,

Carolyn E. Zimmerman, Acting Manager
Employee Plans Technical Group 3

Enclosures:
Deleted copy of letter ruling
Notice of Intention to Disclose

Cc:
XXXXXXXXXXXXX